Buying From Panic Sellers

Buying From Panic Sellers<br /><br />The panic selling in precious metals is giving us a special contrarian treat. Im talking about a former inflation hedge sweetheart thats being unfairly dumped and is now trading very close to its cost of production.<br /><br />But as savvy resource investors know, the cure for low prices is low prices. They know that when the price to make something drops below the price you can sell it for, less will be produced.<br /><br />If you listen to commodities guru Jim Rogers respond to the talking heads on CNBC when asked for his favorite resource pick, he tells them he begins his research by looking at whats down the most.<br /><br />Thats where we take our clue and spotlight a manic metal that sometimes trades as a store of value, like gold and silver. At other times the metal platinum changes hands like an industrial metal, ruled by supply and demand.<br /><br />Too bad these days its being kicked to the curb like an unloved, unwanted inflation hedge. Yet it is still on the hook to meet industry demand. We need it for clean air, and consumers desire it for high end jewelry. This means the current price of platinum just $1,319/oz. is a real problem. Demand for platinum should surpass supplies by a record amount this year anywhere from 200,000 ounces according to mining giant Lonmin, to 844,000 ounces according to HSBC.<br /><br />If the price drops more, South African miners who produce more than 70% of the worlds supply will probably cut more production. In fact, the two largest platinum miners Anglo American Platinum and Impala say their cost to get it out of the ground is $300 to $500 more than todays street prices.<br /><br />Yet platinum demand is more stable than its cousins. Unlike gold and silver whose long term trends depend heavily on investor sentiment platinums demand comes from two steady sources:<br /><br />Nice Jewelry About half of the platinum mined each year goes to the jewelry industry. Its a key component in cars for filtering vehicle emissions. The only new supply is the amount dug up each year.<br /><br />Platinum is already down more in dollar terms than youd expect maybe luring some investors into this trade early. This is because platinums native currency, the South African rand, has been weak. So mining costs are actually a bit lower than usual.<br /><br />click to enlarge<br /><br />There are some easy ways to own platinum thanks to ETFs. My favorite is the ETFS Physical Platinum Shares PPLT, because they actually have the stuff they buy and store the platinum in vaults.<br /><br />Most investors dont know the current carnage in the precious metals is tanking the price of platinum below viable levels. That means now is the time to buy, or as Warren Buffett would say, Be greedy when others are fearful.